We sold our home and made less than the $250k capital gains threshold. We lived in the home for 10+ years. If we enter the sale into TT taxes owed increase $10K. Why?

[MichaelDC · Accepted solution]

You're right. That income is free and clear as long as:

• You owned the home
• It was your main home for two years or more within the five years leading up to the sale
• You waited at least two years between selling your primary home and excluding your first $250,000 or $500,000 from taxes. In other words, you may buy and sell as many primary homes as you'd like, but you'll only get this tax benefit every two year

However, the solution might be an easy one. Only report the sale if:

•     The gain exceeds the amounts that are exempt from tax, or
•     You received a Form 1099-S from the closing agent.

A closing agent can get an affidavit or statement from you that the sale meets the requirements for exclusion and, if so, not send a Form 1099-S reporting the sale.  If the gain is fully excludable and you don't get a Form 1099-S, there is no reason to report the sale on your tax return and you can delete the sale.

Please feel free to post any additional details or questions in the comment section. 

If you did receive a 1099-S, please double check your entries here. It's hard to tell what the issue is without knowing more about your return.

Tip: Take your time and pay close attention; there's a lot of info and it's easy to miss if you're in a hurry.

Follow the prompts to enter information about the sale of your rental. As you go through the interview, these terms and definitions may be helpful:

·         Sales Price – If you received a Form 1099-S, look in Box 2 (Gross Proceeds), which will generally be your contract sales price.

o    You can also use the Gross Proceeds amount from your settlement closing statement.

·         Sales Expenses for selling your property include:

o    Sales commissions

o    Advertising Expenses

o    Legal Fees

o    Broker Fees

o    Transfer taxes

·         Cost Basis is the rental's purchase price plus buying costs (fees you paid in connection with the purchase such as legal fees, abstract fees, survey charges, owner's title, etc.) plus improvements, minus depreciation.

·         Adjusted basis is the rental's purchase price plus buying costs plus improvements plus sales expenses, minus prior-year depreciation.

• Click on Federal
• Click on Wages and Income 
• Click on I'll choose what I work on
• Scroll down to Less Common Income
• On Sale of Home (gain or loss), click the start or update button

You will need:

• The date you sold your home and the selling price (from your closing statement)
• The date you bought your home and the purchase price (from your closing statement)
• The cost of any major improvements you made, so we can deduct them for you
• Form 1099-C if you sold your home at a loss (short sale)

[ihatedoingtaxes3]

I believe this answer to be correct but question why Turbo Tax does not allow the transaction to be documented and make the determination that taxes are not required to be paid?  Are there other areas where this is the case?

[MichaelDC]

I understand. This suggested a workaround to allow you to e-file without including the $10k in incorrect taxes. Are you using TurboTax Online or Desktop (Windows/Mac)?

[ihatedoingtaxes3]

Desktop.  We downloaded from Amazon.  Are there other workarounds we should know about to avoid over paying on our taxes?  I don't want to have to figure this stuff out, I want the software to do it for me.

Thanks

[MichaelDC]

Thanks. Now that I know you have TurboTax Desktop, I'd suggest saving a copy of the .tax file after filing. Then I'd suggest, to document the transaction, re-input the sale of home. Most times, when I notice a miscalculation in a return for myself, it's because of my input error. Well done on catching the gain on the sale in the first place. Use the info in the answer to try again with fresh eyes and new knowledge....after you e-file. While there are known issues with TurboTax from time to time, most at this time of the season are either resolved or documented. The software is 99.9999%  bug-free. This would be after taking into account thousands of calculations and millions of permutations in tax situations and changes in the tax code a mere 3 weeks ago. Good Luck! and thanks again.